Wednesday, January 30, 2013

As you know, on January 18, 2013, in a move that
surprised the tax preparation community and, I expect, the Internal Revenue
Service as well, the U.S. District Court for the District of Columbia shut down
the IRS tax return preparer regulation program.

In his decision in Sabina Loving, et. al. v.
Internal Revenue Service, Judge James E. Boasberg said the Internal Revenue
Service had overstepped its authority by regulating tax return preparers.
Congress never gave the IRS the authority to license tax preparers. The judge's
order included an injunction that bars the IRS from continuing its
implementation of the RTRP program.

The Justice Department subsequently filed a motion
on behalf of the IRS requesting that the court suspend the injunction and allow
the Service to continue its RTRP program, pending resolution of an appeal to be
filed within 30 days.

In the latest development in this story, yesterday
the Institute for Justice filed a response in federal court to the Justice
Department’s request for a stay of the injunction.

In briefly reviewing the Institute for Justice
filing I discovered that a blog post by me here at TTP, which talked about the
impossibility of the 300,000+ still untested potential RTPS to be able to take
and pass the test by the December 31, 2013 deadline, was referenced in the latest
filing by the Institute for Justice, in a footnote (#11 on Page 10).Posts by Joe Kristan of THE ROTH AND COMPANY
TAX UPDATE BLOG, Jason Dinesen of DINESEN TAX TIMES, and Kelly Phillips Erb of
FORBES’ “TaxGirl” are also referenced in the footnotes.

In discussing the Department of Justice motion,
fellow “twit” (we follow each other on Twitter) Dan Alban, attorney for the
Institute for Justice, explains that –

“The IRS has
repeatedly and grossly misrepresented how the court’s ruling in this case will
affect this tax season, tax payers and the IRS itself.”

To quote the introduction to the January 29 filing -

“The sky is
not falling. Despite the dire claims of Defendants (hereinafter “the IRS”), the
world of tax administration will not come to an end if this Court’s injunction
against the IRS’s unlawful licensing scheme for tax preparers remains in place
while on appeal. In fact, the absence of the registered tax return preparer
(“RTRP”) licensing regulations will make this income tax season no different
from every prior tax season. For the 100-year history of the modern income tax,
tax preparers have always been free to assist taxpayers in preparing returns without
obtaining a license from the IRS or any other federal agency, and taxpayers
have always been free to hire whomever they pleased to prepare their tax return.”

The IFJ contends the the Department of Justice
motion made “several misleading claims
and unsettling arguments, including inflating the monetary cost of the ruling
to the agency by over 2,000 percent”.

Dan points out -

“But even
taken at face value, the IRS’s arguments are truly appalling. The IRS told the court that their licensing
scheme is a cash cow, and the agency must be permitted to continue milking
hapless tax preparers, despite a federal court declaring their scheme unlawful.”

I originally supported the IRS regulation regime,
mostly as a “lesser of two evils” alternative to having regulation legislated
by Congress.I supported the concept of
the RTRP designation, and felt that this certification would provide experienced,
competent, and ethical “previously unenrolled” preparers like myself with the
respect and recognition we deserved.But
all along I believed the best option would be certification and oversight by an
independent industry-based organization (I discuss this option in detail in an
editorial that will appear in TAXPRO TODAY either tomorrow or Friday).

While I respected the original lawsuit’s “libertarian”
arguments, I did not agree that the IRS regulation regime would force tons of serious
and legitimate tax professionals out of business.I do agree that the regulation would result
in the loss of many probably good intentioned and ethical part-time seasonal “casual
preparers” (as Joe Kristan has called them) with minimal training and
competence – but I also feel that this is not necessarily a bad thing.

At this point I do support the court’s
decision.I feel that the injunction should
stand and the IRS RTRP program should remain shut down for good.The court should not grant the
Department of Justice motion.There
would be no real “damage” to the IRS if the injunction stands, while, as I mentioned
in an earlier post here, there would be much potential “damage” to tax preparers
if the regime were to temporarily continue and the court decision is eventually
upheld, as I expect it will be.

But
RTRP is not the proper designation.While the court case shut down the IRS regulation regime – the RTRP
testing and CPE requirements - it did not end the need for those who prepare
tax returns for compensation to “register” and receive a PTIN.So, in reality, all individuals with a PTIN
are “registered tax return preparers”.

The
obvious choice of designation is “Certified Tax Return Preparer”, as this is a
voluntary certification program.However
I expect that the AICPA would be up in arms at the use of the term “certified”.

“Tax
Return Professional” is an option – but this would do a disservice to those
preparers who are true tax professionals that choose not to seek the
designation.The new program is, after all,
voluntary.One does not need to have to
participate in this program in order to be a “tax professional”.

I
would not use “Licensed Tax Preparer”.As I said in a previous post here, the term license implies government
involvement and a legal requirement or distinction.

The
designation “Chartered Tax Professional” has been used, but the term “chartered”
confuses US tax preparers with European preparers, as the equivalent of a CPA
in Europe is a Chartered Accountant.

There
currently are “Accredited Tax Preparer” and “Accredited Tax Advisor” designations.But I do not think “accredited” is the proper
title.And these titles are already in
practice and may be copyrighted by ACAT.

It
would seem that “Certified Tax Preparer” would be the best choice.Do you think the AICPA would protest?Do we really care if they do?

Whatever
title we choose for the designation, if the concept goes beyond the proposal
state, I do not want to repeat the error of the “Enrolled Agent” designation –
which totally confuses the public.

So
what do you think the professional designation for tax return preparers should
be?

Thursday, January 24, 2013

I had to laugh while reading all the tax profession “insiders” – i.e.
representatives of various membership organizations, fast food tax preparation
chains, software providers, and the IRS itself – complain about the terrible earth-shaking consequences
that will come from the shutting down of the IRS tax preparer regulation regime
by the US District Court.

I have been preparing
federal and state income tax returns for individuals in all walks of life for
over 40 years.Prior to the initiation of
the IRS program in 2011, the tax preparation business has never been regulated
to any real degree.Obviously crooked
tax preparers, when discovered, were prosecuted for tax fraud and other crimes,
and there were certain regulations under Circular 230, and “preparer penalties”.

But for as long as
I have been in business, and for the years before, there were no real
restrictions to or regulations for being able to prepare income tax returns for
a fee.As I said in my post on preparer
regulation/licensure/certification – any cafone could hang out a shingle as a “professional
tax preparer”.And while many a cafone
did, many competent and ethical individuals also did, and in doing so provided an invaluable
service to our voluntary tax system.

And this tax system
has survived and functioned all these years.

As I stated in a
previous post here at TPP, I did not object to the IRS regulation regime, except
for two of its regulations, and would gladly accept industry-based, or even
IRS, oversight of the tax preparation business.But I would also be just as happy to continue operating without
regulation or stricter oversight, as I have been for the past 40 years.

Some kind of
certification program, required or voluntary, would benefit the industry and
the public.But continuing to have no
special certification or regulation program would not hurt the industry and the
public.

Late Wednesday night, January 23, the Justice Department filed
for a 30-day stay of the injunction so the IRS could respond to the court's
decision in Loving v IRS.

I do not believe the IRS should be able to continue to offer the
competency test, and accept reservations and payments therefor, while the
decision is being appealed.Here I agree
with Dan Alban and the Institute for Justice.

If the decision is eventually upheld, those tax preparers who
paid for and took the competency test will have wasted their time and money
(not only on the actual test, but also on classes to prepare for the test).The number of tax preparers who will have
done so will increase if the stay of the injunction is granted.

If the IRS eventually wins its appeal it can then continue with
the testing.

Nobody will be hurt any further if the injunction stands until
the final appeal is decided.All that happens
if the IRS wins is that it will have to push back its original December 31,
2013 deadline for passing the test.

In
light of current developments I have decided to publish in detail my opinions
on the subject of tax return preparer regulation, licensure, and/or
certification.

Since
the beginning of the IRS inquiry I have supported the concept of “licensing”
tax return preparers.

Prior
to the IRS attempt at regulation, any cafone could hang out a shingle as a
“professional tax preparer”. A person with no knowledge or experience could
simply purchase a tax preparation software package and offer themselves up to
the public as a tax expert.There was no
standard to assure that a person who calls himself/herself a “tax preparer”
actually knows his arse from a hole in the ground when it comes to the Tax
Code.

One
morning, several years ago, while walking on the main commercial street of my
section of Jersey City I saw a sign in the window of a barber shop that read
“tax returns prepared here”. You could apparently get a haircut and a manicure
and have your 1040 prepared all in one sitting! Many years ago, before I had my
own office, I had considered renting a desk in an insurance or real estate
office.iI never occurred to me to rent
a chair at a barbershop.

Early
in my career, when I was working with my mentor Jim Gill at Journal Square
(where the “Jersey Bounce” started), I came across a near-vacant room in the
corner of the old bus station with large storefront windows. Inside the room
was a person sitting on a folding chair at a card table with an adding machine
– there was no other furniture or fixtures in the room. A hand-printed
cardboard sign in the window advertised “Tax Returns Prepared Here”. What was
sad was that I once actually saw a person in the room getting his return
prepared.

I believe
that an RTRP designation, or some similar designation, whether required or
voluntary, would put the competent, experienced, and ethical previously
“unenrolled” preparer, like me, on an equal footing with the CPA in the eyes of
the general public. It would dispel the unfounded “urban tax myth” that a CPA
is a tax expert.CPAs would no longer
erroneously “own” the tax preparation business, as the AICPA told a member it
believed they did.The mere possession
of the intials CPA does not in any way, shape or form indicate that the
possessor has any knowledge of the Tax Code or any experience in preparing
1040s.

My
objections to the final IRS regulations for the program have been twofold –

(1)All individuals who wish to prepare
1040s for compensation should be subject the same requirements.CPAs, attorneys, and “supervised employees”
should not be exempt from either any testing requirement or the annual CPE in
federal taxation requirement (EAs have already been tested and already maintain
CPE in federal taxation).

(2)There should be a “grandfathering”
exemption from the competency test for long-time experienced preparers who have
proven that they remain current by having taken the currently required amount
of CPE during a multi-year “look-back” period.

I do not feel that tax preparers
MUST be regulated, but I do not object to proper regulation.If the IRS did not initiate its program I
would not be calling for regulation.Now
that the court has shot down the current IRS program I will not be calling for
its reinstatement, but will not fight against any eventual reinstatement.

To be honest, licensure or
regulation, even as was in effect under the IRS RTRP program, would not affect
my individual practice one bit.I would
continue to operate my 1040 practice in the same way under regulation as I did
prior to regulation.

I have had a PTIN since 1999, as an
alternative to having to enter my Social Security number as preparer on tax
returns I prepare and sign.For at least
the past 25 years I have maintained an average of perhaps 24 hours of CPE in
federal taxation, as well as state tax CPE, each and every year. While I do not want to be forced to take the RTRP
competency test, having to do so would not force me to abandon my practice.

You don’t get any more “mom and pop”
than my practice.I have no employees,
and never have.I do not have an office
open to the public.For the past 10
years or so I have been working out of my home, occasionally visiting clients’
homes to pick up their tax information.To say the requirements of the IRS regime, especially the CPE
requirements, were “onerous” and “prohibitive” is ridiculous.They would certainly not force this “pop” (no
mom) out of business.

I firmly believe that ongoing continuing professional education
is a MUST to remain in business as a tax professional.I have always said that any serious tax preparer
who is not already maintaining the equivalent of at least 15 hours of
continuing education each year should be.The cost of obtaining and
verifying such continuing education is a basic “ordinary and necessary” (and
I do mean necessary) cost of being a tax
preparer.

I prefer to attend live CPE classes
as a major component of my continuing education.But I also continually “self-study”.My annual continuing education “budget” is
not large, and I know that there are much less expensive, and even free,
alternatives to live seminars and workshops.

I do believe that requiring all CPE
providers to be individually approved by the IRS is going too far and should
not be part of any regulation, licensure, or certification program.

As a point of information, I was “self-taught”
in the “art and science” of tax return preparation decades ago by way of
actually preparing tax returns, initially using prior returns as a guide, under
the guidance and supervision of an experienced tax professional.

CPA Joe Kristan, a vocal opponent to
IRS regulation of tax preparers, believes that the IRS regulation regime would
force many “casual preparers” out of business.I will admit that he may be correct to a degree – but I also believe
that this is not necessarily a bad thing.

There are a good number of
individuals out there who prepare 1040s for friends, coworkers, neighbors, and
referrals therefrom for a fee, based merely on their experience preparing their
own returns over the years and from reading the new IRS Pub 17 or 1040
instruction book and/or other sources.These individuals may be sincere and feel they are providing a service
to their “clients”.Yet they may not be,
and very probably are not, providing the best service to these clients.I would consider these individuals “casual
preparers”.

I am constantly hearing nonsense
from my clients that they have attributed to such “casual preparers”.If such “casual preparers” are forced out of
business because of the RTRP requirements this is good for the taxpayer public
and the tax preparation industry and the Internal Revenue Service.

As I have asked in response to Joe’s
assertion, would you want a “casual” electrician wiring your kitchen, or a “casual”
dentist filling a cavity, or a “casual” architect designing your home?

Joe also believes that the
government regulation of tax return preparers would not substantially reduce
tax fraud.Here I agree completely with
Joe.But that is not the main reason for
such a regulation, licensure, or certification program

While I agree that having the
Internal Revenue Service regulate tax preparers is not the best option – it is
without a doubt a far superior option to having Congress legislate regulation.My opinion of the intelligence, competence,
and ability, or rather lack of intelligence, competence, and ability, of the
current members of Congress is well known.

The optimal source of tax preparer
regulation/licensure/certification, whether mandatory or voluntary, would be an
independent industry-based organization, not unlike the AICPA or ABA, such as
the National Institute of Registered Tax Return Preparers that I have proposed.

So there you have it – my opinions
on the subject of tax return preparer regulation, licensure, and/or
certification.

CPA
Joe Kristan started the ball rolling, and proved that brevity is the soul of
wit, with his “tweet” –

“Constructive.”

He
did go on to say in his Tuesday “Tax Roundup” at the ROTH AND COMPANY TAX
UPDATE BLOG –

“Robert D. Flach proposes a voluntary
Registered Tax Return Preparer designation.I have no problem with a voluntary branding, and if Robert and other
unenrolled preparers can make a brand of it, more power to them.I don’t see it happening, though, as it
would do nothing for the big franchise preparation companies, who already have
their own brands.”

Dan
Alban of the Institute for Justice, the attorney who won the recent court case
against the IRS, supported the idea in two “tweets”–

“Great plan! Best of both worlds: certification
for preparers/consumers who value it and lets people choose.

An excellent
constructive proposal from tax veteran @rdftaxpro - voluntary certification
offers best of both worlds.”

A
tweet from Kim Kislak –

“Good Idea, since there is no way to stop
ghost preparers. If the ruling sticks with the IRS, they will need to implement
something.”

Enrolled
Agent Jason Dinesen “tweeted” –

“I agree with the premise, but there needs to
be clear distinction about practice rights of the licensed vs. the unlicensed.”

“Robert Flach (aka The Wandering Tax Pro)
responded to the ruling by proposing the creation of an independent
organization called the ‘National Institute of RTRPs’ that would issue and
oversee the RTRP license.

Robert’s
idea has a lot of merit. An independent overseer of the RTRP designation would
be more likely to be successful than the IRS’s lame attempt. And certainly
there needs to be some way to hold the unlicensed accountable, especially in
regards to continuing education.”

On the other hand,
this "tweet" from CPA Peter J Reilly of FORBES.COM -

“I doubt it would be worth the effort to get
it going and establish the brand.”

And Russ Fox EA
put in his more than 2 cents worth on the issue with “Alphabet Soup” at TAXABLE
TALK -

“While Robert Flach argues that RTRPs should
be resurrected as a voluntary designation, I doubt that will happen (and I
don’t see a benefit from it).”

Kelly Phillips
Erb, a tax attorney, referenced my post in her interview with Dan Alban at
FORBES.COM “Attorney Who Bested IRS In Tax Preparer Regulation Case Speaks Out”.She promised to read my post after hers was
published, saying “I haven’t read the
piece yet because I didn’t want it to influence my post”.I had heard no more from Kelly prior to
scheduling the publication of this post.I will let you know what she has to say in a future post.

“As for the voluntary licensing, which one?
It would be nice to think that one of the existing tax preparer organizations
will create a definitive program but I can see testing and certification
programs popping up all over the place. That could be the downfall of a
voluntary program; too many options and criteria. Each program would have its
own designation and qualifications. Tax preparers could chose the program they
like the best (easiest test, least continuing education, lowest cost).
Taxpayers would be confused trying to keep the designations separate.

If I was creating
the program, I would have a mandatory test and annual continuing education of
at least 15 hours for anyone preparing over 10-15 returns a year. I wouldn’t
have grandfathering (sorry Robert) because I’ve seen too many “experienced”
preparers make mistakes. If you’re going to have a standard, everyone should
have to meet the same standard no matter how long they’ve been in business or
how many returns they do a year. Keep it simple.”

First I do not
want to call my voluntary RTRP program “licensing”.The term license implies government involvement
and a legal requirement or distinction.I prefer to refer to it as a “certification program”.

Trish has
described the problem of voluntary designations like Certified or Chartered Tax
Preparer in the past – each organization offering its own option.As I explained in my post, the National
Institute of RTRPs would only succeed if it were the only voluntary option, and its governing board included all existing tax preparer organizations
and, perhaps, a representative of the IRS.

I would, however,
insist on “grandfathering” (which would include those who had already passed
the IRS RTRP test and been issued the designation, which I failed to mention in
my initial post).And I would recognize
those who have already passed a competency test either via an education program
or state licensure.My program would
also welcome CPAs and attorneys to have the opportunity to “enroll” and thereby
identify their 1040 preparation ability.It would, obviously, be totally unnecessary for EAs.

Just as a matter
of logistics, it would be unwieldy and expensive to have to test a potential
400,000 individuals in a short period of time (as the IRS has discovered).

Thanks to all my fellow tax pros and tax bloggers for sharing their thoughts and insights on the issue. Further comments are welcome!

Let me end by
saying this.The last thing I want is
the idiots in Congress legislating tax preparer regulation. They have FU-ed enough things – let’s hope
they keep their hands off this issue.

Monday, January 21, 2013

As you know, the US District Court has, at least
temporarily, shot down the IRS tax preparer regulation regime.

Let me offer a starting point for a discussion on “voluntary”
tax preparer certification via an independent National Institute of Registered
Tax Return Preparers.

I use the designation of “Registered Tax Return
Preparer” only as a convenience and for comparison to the recently stuck down regulation
regime.The name could very well be “Certified
Tax Return Preparer” or something else.

All individuals who prepare 10 or more tax returns
for compensation would be required to register with the Internal Revenue
Service and receive a PTIN (Preparer Tax Identification Number).The only requirements for registration are
that the individual has not been convicted of a financial-related felony within
the past 10 years, and he/she is current with 1040 filings (but not payments). There will be no charge for the initial
registration, or at most a nominal $25 registration fee.So that this registry remains current,
PTIN-holders must renew their registration every 5 years.There will be no further requirements, or charge,
for renewal.This will be the extent of IRS
“regulation” of “unenrolled” preparers, other than as previously provided in
Circular 230 (prior to the initiation of the regulation regime).

PTIN-holders can voluntarily elect to apply with
the National Institute for Registered Tax Return Preparers for the designation
of Registered Tax Return Preparer (RTRP).

The Institute will be an independent non-profit organization
established solely for the purpose of issuing, maintaining, and promoting the
RTRP designation. Its governing board
will consist of a representative, perhaps the Executive Director or Board
President, of the National Association of Tax Professionals, the National
Society of Tax Professionals, the National Society of Accountants, the American
Institute of Certified Public Accountants, the American Bar Association, and
any other appropriate tax-related membership organization, a high-ranking representative
of the Internal Revenue Service, and at least two “previously unenrolled” practicing
tax professionals.

In order to be designated as a RTRP, a candidate
must possess a valid PTIN and pass a competency test on federal 1040 tax law.A “grandfathering exemption” from this test
will be allowed for –

·Tax professionals who have been consistently
preparing federal income tax returns on at least a half-time basis (during the
traditional tax filing season) for at least five (5) full years AND who have
successfully completed a total of 48 hours of continuing professional education
(CPE) in federal taxation in the 3-year period (36 months) prior to applying
for the designation.

·Tax professionals who have been licensed or
certified to prepare income tax returns under a required state program that
includes a competency test.

·Individuals who have successfully completed a
certificate or certification program in federal income taxation offered by a
qualified educational institution or qualified membership organization that includes
testing.

The "grandfathering" period for applicants shall last for the first three (3) years of the program.

RTRPs
must renew their designation every three (3) years by submitting proof of
completion of a total of 48 hours of CPE in federal taxation during the three-year
period, with at least 8 hours each year.The 48 hours must include three (3) hours of “tax updates” per year (a
total of 9 hours) and one (1) hour of “ethics update” within the three-year
period.

There have been many attempts at voluntary
certification of tax return preparers – creating a designation for tax
preparers (Certified Tax Preparer, Chartered Tax Preparer, etc) – over the
years.But none have been successful
because they were offered and maintained by individual membership or CPE organizations and
were not universally accepted by the industry.Creating a National Institute of RTRPs, with representatives of all
industry “players” to maintain the designation, should correct this.

Saturday, January 19, 2013

As
expected, even though it is a Saturday the tax blogosphere was a-BUZZ with the
word that the court has closed down the IRS tax preparer regulation regime.

Joe Kristan is as expected, a pig in reality tv over the court decision.

“I am glad that the IRS lost in court.I have hoped the regulations would be
overturned, and I thought they should be illegal, but I am not a master of the
law covering IRS regulatory problems.Regardless of whether they are legal, I have always thought the
regulations unwise.”

Russ Fox reports the death of regulation (for now) and suggests the unthinkable –
that the idiots in Congress might legislate regulation -

“While the IRS is certain to appeal, it appears
that the RTRP program is dead (at least for now). It will likely take an act of
Congress to expand the IRS’s regulatory power to unenrolled preparers. And
that’s not likely to happen in the current Congress.”

There
was also a lively discussion on various aspects of the regulation regime on
Twitter.

“CPE requirements
are a Must! Sadly, there so called tax pros who don't even have basic
fundamental knowledge of tax prep.

The exam is
useless. I would much prefer an independent Org to administer required CPE's
for unlicensed preparers.”
- Alex P. Louis, EA

“There's another option - voluntary
certification (rather than regulation) by either the IRS or an independent
group.” - Dan Alban

“And no monopoly to one for-profit company.
Resent being forced to give $ to Prometric.” – Mariette Knoblauch, CPA.

A
follow-up “tweet” from Dan led me to a September 2012 quote from Chuck McCabe,
chief executive of Richmond, Va.-based Peoples Income Tax and The Income Tax
School -

“The new requirements will cause an exodus of
tax preparers, who will stop practicing rather than take the test and complete
annual education”

How many times
must I say that CPE is not an excessive or prohibitive requirement – it is a
basic and very necessary cost of doing business, regardless of whether or not
it is required!

NATP offers two
days, 16 hours, of CPE, which includes the 3 hours of updates and 2 hours of
ethics, at many locations throughout the US (so there is no need to incur costs for travel or
lodging) in November-January.The cost of the 2 days for 2012 was $349.I expect other providers offer less expensive
alternatives.So if that is $3.50 per
return if spread over 100, $1.75 if spread over 200, or a little over $1.00 for
300 clients.

I cannot see
anyone who is making a good living as a tax preparer leaving the business
because of a $64.00 annual fee and a one-time test.

The
problem of forcing preparers out of business comes from the IRS insisting on
not postponing the deadline for testing with over 300,000 PTIN-holders who have
to sit for it, or its insistence on not allowing grandfathering.While I do not want to waste time and money
on the test if I do not have to, I will take it if the alternative is giving up
my business.

Dan
also “tweeted” –

“It is expensive. Taking CPE classes is not
the only way to stay up-to-date on IRS regs. Many people learn better from
reading.”

This
is true – self-study.But there are
options available to receive credit for self-study.

Trish
McIntire joined me in shooting down the argument that the cost of regulation
would in itself force serious preparers out of business in her post “Licensing Pity Party” (highlights are mine) -

“This lawsuit involved three tax preparers
who claimed in part that the costs of the new tax preparer regulations will
force them to stop preparing returns. Bovine
excrement! The preparer costs are a onetime testing fee of $116, an annual
PTIN registration of $64.25 and the costs of 15 hours of continuing education.
How much does the CPE requirement cost? That depends on the courses used. In
2012, I paid $428.50 for 32 hours of course work. That averages to $13.39 an
hour. I could have spent less. I’ve seen free CPE and companies that offer
packages under $10 an hour. I’ve also spent more for special courses I wanted
to take. But working from an average of $15 an hour for 15 hours equal $225 a
year for continuing education. So the plaintiffs in Loving vs. the IRS contend
that a onetime cost of $116 and an annual cost of about $300 will force them
out of the tax prep business. Sorry, but
if your business can’t survive a $300 expenses (which can be passed on to
clients) then you should really consider not being in that business. Sorry!

But
should the continuing education cost really be a new expense for any tax
preparation business? How do the plaintiffs and thousands of others prepare for
the tax season? How do they keep up with law changes and paperwork
requirements?

I understand
filing this lawsuit under strict libertarian principles. But part of the
judge’s ruling is that this law will cause “irreparable injury” because 2 of
the plaintiffs would have to close their businesses. Closing a business for $300 a year plus a onetime testing fee is bogus.
Especially when some of the $300 should have been expenses the business was
already paying.”

The
issue in Loving v. Internal Revenue Service, 12- cv-00385, U.S. District Court,
District of Columbia, the case which put a temporary end to the IRS return
preparer regulation regime, appears to be one of preparation vs practice.The IRS can regulate “practice” before the
IRS, but preparing a tax return is NOT practice before the IRS.

A
news item from Bloomberg explained -

“The licensing rules are invalid because the
IRS stretched a law allowing it to regulate people who ‘advise and assist
persons in presenting their cases’ before the agency to cover tax preparers,
U.S. District Judge James Boasberg in Washington wrote in a decision yesterday.”

The
Judge observed that, “Filing a tax return
would never, in normal usage, be described as ‘presenting a case’.”

I
do agree that there is a big difference between “practicing before the IRS” and
“preparing a tax return” - and that “preparing a tax return” is NOT “practicing
before the IRS”.I had discussed this
argument here in the past in relation to the exemption from CPE and testing for
CPAs and attorneys.The question is whether
the IRS has the authority to regulate preparing a tax return.

The
regulation of preparers began as a perceived need by the IRS for a central
registry to identify all tax return preparers.In the past, many, but not all, preparers had applied for a PTIN to use
as an alternative to entering their Social Security number on tax returns they
prepared.I was one of these
preparers.Some preparers had an IRS
“CAF” number, which was related to filing a Form 2848 (Power of Attorney and
Declaration of Representative) or Form 8821 (Tax Information Authorization).The CAF number represented a file that
contains information regarding the type of authorization that taxpayers have
given representatives.I also had a CAF
number.

The
desire for regulation was further encouraged by a Government Accountability
Office (GAO) undercover study which resulted in a report to Congress titled
“Paid Return Preparers: In a Limited Study, Chain Preparers Made Serious
Errors”.The GAO sent undercover agents
with two different tax scenarios to a total of 19 offices of 5 “fast-food”
commercial tax chains, including H+R Block, in a metropolitan area. In only 2
instances was the correct refund calculated, but all 19 returns contained
errors.

At
the time someone within the IRS system, perhaps a member of its “civilian”
advisory board, pointed out that a barber needs a license, but a tax preparer
does not.

I
do not question the IRS need to “register” all tax return preparers.The issuance of a PTIN, with or without an
annual registration fee, accomplishes this without causing any real problem or
inconvenience.Background checks and
fingerprinting may be going a bit too far (thankfully the fingerprint
requirement has been tabled), but requiring that preparers remain current in their
own tax filings (but not payments)
may be appropriate.I do not think the
IRS needs Congressional authority to “register” tax preparers.

The
“plaintiffs” in this case, three previously unenrolled tax return preparers,
allege that the IRS return preparer regulation regime will force them to go out
of business because the requirements for becoming a RTRP are “prohibitive”.To me this is garbage.Spending
$64 a year for a registration fee and perhaps $300-$500 a year on CPE, which
any serious tax return preparer should be doing anyway, is certainly not “prohibitive”
or even excessive.(What I do find
perhaps prohibitive is forcing tax preparers to spend many thousands per year
for flawed tax preparation software in order to be able to file electronically)Again – garbage.

Some
of those who oppose the regulation regime say that it will force “casual” tax
preparers out of business.As I have
said before this is not necessarily bad. Do you want a “casual” dentist filling your
cavity, or a “casual” lawyer defending you in court, or even a “casual” barber
cutting your hair?

The
ultimate question is not if the requirements are too excessive.It is whether the IRS has the authority to
force tax return preparers to pass a test and take required CPE to remain in
business

I do not want to take the test (although I would if forced to) - so if this Court decision is the final word (which I do not think it will be) and it relieves me from having to take the competency exam I will not complain. But if the decision is the final word, and it forces the idiots in Congress to ultimately legislate regulation, the result could be much worse than the current regime.

The
first thing I did when I returned home on Friday night from a lunch with former
co-workers from my days at the Art Center in Summit NJ (we have remained
friends for decades – and get together for each of our birthdays) was check my
email.There was a message that a fellow
“twit” (and fellow tax pro and tax blogger) had mentioned me in a “tweet” with
a link to a news item.

“A federal judge on Friday barred the IRS
from imposing a series of new regulations, including a competency exam, on
hundreds of thousands of tax preparers.

U.S. District
Judge James Boasberg in Washington ruled against the IRS in favor of three tax
preparers who filed suit last year with the help of a libertarian legal group,
the Arlington, Va.-based Institute for Justice.

The Institute for
Justice argued that the IRS lacked the statutory authority to impose the
regulations and said they would put tens of thousands of mom-and-pop tax
preparers out of business, because the regulations were onerous and create a
competitive disadvantage to the attorneys and CPAs who were exempt.

The judge's order
includes an injunction that bars implementation of the regulations, which have
been put in place on a piecemeal basis.

An IRS spokesman
declined comment Friday on the judge's ruling.

The government
can seek to appeal.”

Elsewhere
on the web I found this quote from the Court decision –

“With an invalid regulatory scheme on the
IRS's side of the scale and a threat to Plaintiffs' livelihood on the other,
the balance of hardships tips strongly in favor of Plaintiffs. Finally, the
public interest would be served by a permanent injunction because the IRS's new
Rule is ultra vires [beyond its power].”

Here
is what I “blogged” about the Institute for Justice’s initial complaint back in
October of 2010 –

In “Institute for Justice
Speaks Out On IRS Power Grab” at
THE ROTH AND COMPANY TAX UPDATE BLOG he refers to statements by Dan Alban, a
staff attorney at the Institute for Justice in Arlington, Virginia who has
filed comments with the IRS on behalf of the Institute opposing the proposed
licensing requirements.

“This scheme will disproportionately hurt small tax-return preparation
businesses and independent preparers, many of whom may be forced out of
business.”

Why do those opposed to tax pro registration continue to say the costs of the
new regime will be prohibitive and hurt small tax return preparation businesses
and independent preparers, forcing many out of business? And that the regime
will increase the cost of tax return preparation services? I wish they
would explain.

You don’t get any smaller or more independent than me and my practice. As I
have said over and over again the costs are minimal – and hardly worth passing
along to clients. $64.25 per year ain’t going to break me – nor will a nominal
one-time $100-$200 for the test.

{As
an aside, the only thing that would possibly force me out of business is being
required to submit all my returns electronically using the current system of
expensive and flawed tax preparation software.}

Speaking from my specific individual situation – I would, to be honest, not be
upset if there were no regulation of tax preparers. I have been operating
profitably and happily for 39 years without regulation, and would just assume
continue that way for my last 11 years. If regulation had not been proposed by
the IRS I certainly would not be campaigning for its institution. But if it is
to become a fact of business life I can see how it does have merit and provide
benefits to preparers, taxpayers, and the IRS.

Now that it is in place, my only real complaints are about having to take a
test after 39 years of practice without incident to show that I know what I am
doing, and having to sit through 2 hours of “ethics” each year. Having to take
the initial competency test is a PITA, and 2 hours of redundant ethics
“education” annually is a waste of time – but it is nothing I cannot handle.
Many CPE offerings had been including 2 hours of ethics for a few years now –
so I have already been wasting my money.

Truth be told, regulation does not affect my practice one way or another –
other than as a minor inconvenience. I am not looking to increase or expand my
1040 preparation business – on the contrary I am looking to “thin the herd”.
And if I did need more clients I could easily get them by telling my existing
ones I was accepting new work. I already attend more than 15 hours per year in
CPE classes in federal taxation. And I am honest and ethical.

Since writing the
above post I have become more “militant” in my opposition to the initial
competency test.It really does not
prove anything – and, as I have said before, by the time one takes the test
based on prior year tax law the idiots in Congress can change everything and
the exam will have demonstrated that the taker is competent in obsolete tax
law.I support doing away with the test
altogether, or, at the very least, providing a “grandfathering” exemption for
long-time experienced tax pros like me.I know, as everyone keeps telling me, that the test would not be a
challenge for me, but I just don’t want to waste the time and money on it after
over 40 years in the business.

I wholeheartedly
support the annual CPE requirement (except for the annual ethics preaching),
and feel it should be expanded to include CPA, attorney, and “supervised employee” PTIN-holders.To repeat (for
about the 20th+ time) – if a serious tax preparer is not already
taking at least 15 hours of CPE in federal taxation each year he/she certainly
should be.Much more than the competency
test, CPE indicates that a tax preparer is knowledgeable and remains current.

As I have said a
number of times in the course of the debate on tax return preparer regulation,
I would much rather have the IRS institute and oversee the regulation than have
it legislated by the idiots in Congress.As I have also said many times before – the idiots in Congress can fuck
up a High Mass!My preference is,
however, having the regulation regime administered by an independent industry-based
non-profit organization, similar to the AICPA and the ABA.An American Institute of Registered Tax
Return Preparers if you will.

I doubt that this is
the end of the story.I do expect that
the IRS will probably appeal.Hey, maybe
the appeals will take 8 years and I can retire after 50 tax seasons without
having to waste time and money on a useless test!

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About Me

I am a professional tax consultant with 40+ years experience preparing individual income tax returns for people in all walks of life, from professional football players and actors to doctors and architects to secretaries and clerks.
I am a member of the National Association of Tax Professionals.
I was born and raised in Jersey City, New Jersey, but recently moved to Northeast Pennsylvania.
After the "tax season" is over I enjoy travel via all methods (bus, train, ship and plane), going to the theatre (local, regional, off-Broadway and Broadway), and "blogging".